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Amazon

With the recent advancements in technology, electronics, and the internet, consumers have begun to take completely different approaches to browsing, shopping, and acting as consumers. What was once the largest, and considered most financially sound, consumer retail store of the 90’s and 2000’s, has now turned into a thing of the past.

Best Buy, a store where consumers go to purchase electronics (i.e computers, cell phones, tablets, CD’s, DVD’s) has recently become the subject of many discussions regarding whether the consumer giant can stay afloat. Amazon Inc, an online e-commerce retail website, where items can be found in minutes, purchases made in seconds, and products delivered in hours/days, has rapidly taken over the electronic/technology retail space that Best Buy had once almost monopolized.

Best Buy started as the only game in town, where people could visit, shop, receive helpful advice, and bring home their devices with protective warranties. However, internet retailers such as Amazon.com and Ebay have entered the same market as Best Buy, with lower overhead costs, more convenience, quicker purchases, and better warranties, and it has seriously put a dent in Best Buy’s future outlook.

Each of the Best Buy stores possess large overhead costs which include the likes of labor, utilities, product inventory, management, and building tax/mortgage. Not to mention, Best Buy has to deal with in-store and corporate operational management, budgeting, inventory forecasting across all of their brick and mortar stores, and labor hour allocation issues in each establishment. Amazon, which does not have any stores and ships only from warehouses, also possesses some operational management difficulties but certainly not on the scale that Best Buy does.

It might be the overhead that is making Best Buy have a hard time staying above water, or it might be the dwindling brick and mortar retail industry, but one thing is for sure, consumers are preferring online shopping over getting in their cars and driving to the store. In fact, Best Buy has recently reported that consumers now only use their store as a showroom, or in other words, a place to test the devices before they decide to purchase them on Amazon (Consumerist.com).

In their article “Amazon is Eating Best Buy’s Lunch”, CNN states, “The electronics retailer reported quarterly sales Tuesday morning that were lower than a year ago and below Wall Street’s expectations. The main culprit? Tough competition from online retailers”.

Perhaps there are some ways that Best Buy could improve their sales while still competing with the titans of the internet retail industry.

What are some ways you believe that Best Buy could bounce back from their poor 2014 performance and stay afloat?

Describe your experiences with Best Buy and explain why it may/may not be completely out of business?

What ways could Best Buy improve their operational management structure?

Why do you think that Best Buy remains in business despite the heavy consumer preference for online retail websites?

List some examples of operational management strategies that Best Buy could take advantage of but you believe are not being used properly.

Earlier this month, the U.S Postal Service announced that they have made a deal with Amazon delivering groceries on a test basis. The U.S Postal Service is a big player in mail delivery services, handling 40% of the world’ mail and visiting homes and businesses alike six days a week.

USPS is now lowering their parcel delivery prices during a time where their competitors (FedEx and UPS) plan on increasing their prices. Both FedEx and UPS fear that with the recent changes USPS has been making with their services and prices will steal away their customers. This rings true in the case of Amazon, when just last December both FedEx and UPS misjudged the amount of holiday packages and many customers did not receive them until after Christmas.

FedEx and UPS however do not think it’s fair for their companies because USPS a is a government owned delivery service and has a monopoly on the business. This being said, it is also true that USPS has been suffering from a decline over the years due to the creation and embrace of e-mail.

One possible solution that Lenoard proposed was that congress could allow for the USPS to leave the letter monopoly and let firms and couriers compete for this business like European posts have done. This would give the USPS the opportunity to focus soley on the parcel delivery service and would also avoid financial collapse. Lenoard also goes into the topic of USPS becoming more attractive to private investors that have helped European posts. If this were to happen, then the money that could come from private investors could help USPS with their aging trucks, making it more cost efficient and possibly speeding up their delivery.

USPS’ recent business decisions displays examples of the three strategies of competitive advantage we discussed in chapter two. First USPS competes with FedEx and UPS in differentiation in their deal with Amazon by delivering groceries. I personally think this is pretty unique because it breaks away from the association that USPS has with just letters and packages, they open up the idea to their customers that they can now deliver groceries, creating a more universal delivery service. Secondly, USPS uses competitive advantage in competing on costs by lowering their prices, allowing for cheaper shipping and delivery services than that of their competition. Lastly, USPS is becoming more responsive. They are allowing themselves to be cost effective, flexible by matching market changes in their new grocery deliveries, and reliability by meeting delivery schedules.

I personally am an USPS person, I have my packages delivered by them and I receieve majority of my packages through the USPS. I find their services of great quality and timely delivery.

What type of delivery service do you use and why? If you use either FedEx or UPS would you change your mind after hearing about their delays in their delivery, why or why not? What else could USPS do to give them a competitive advantage?

Before starting this class, I was already aware that forecasting was important. However, I didn’t realize the extent to which it was important. Forecasts drive so many decisions that are made within a company. It is hard to know if you are being too conservative or too ambitious because you never can predict the market. Once you get the forecast, all of the other departments work together to make sure that the numbers are realistic and can make a profit in the end.

I also saw that you can start with one strategy in mind and then you can just end up going in a different direction later on. I was assuming that companies had to stick to the strategy that they intended to start with but that isn’t true. Change is inevitable and you just have to learn to grow with the changing markets.

Amazon is a company that has maintained its strategy for many years. They aim to make their customers as happy as possible and they have done a good job with that. They didn’t follow the Silicon Valley theory where you focus less on revenue and try to establish a product or service. Amazon doesn’t focus on profits, their profit margins aren’t that great but they still have people willing to invest in them. Amazon isn’t worrying about revenues, they are trying to gain more memberships without changing the price to match inflation. Money just doesn’t seem to be a problem for Amazon. They created Amazon Fresh and it just needs to make enough to finance its self. There strategy is proving to work very well for them because they keep adding more services to their business that they really don’t need to finance very heavy. They are able to charge fairly cheap prices for their Kindles because customers will purchase games and applications from the Amazon Kindle store. Their goal is to have their products widely spread across a large number of the population. So far, they have done an amazing job with that.

My team’s strategy was to be a differentiator and lead in the high end and low end. As the simulation progressed, we saw that some of our products in those segments just did not do well. They were positioned in the worst spots in some rounds, some stocked out multiple times, and our awareness of the products fluctuated constantly. It was a true learning experience nonetheless. One thing I learned from this course is that you really have to analyze your competitors very closely and constantly do SWOT analysis to keep your company up to date. I also learned that ethics isn’t always a issue of what is good and bad, it can be about what’s in the best interest of the company. Doing nothing is also an option that can be chosen but it will also have implications in some way.

In a recent Wall Street Journal article, “Wal-Mart’s E-Stumble”, Amazon was confirmed as the leader in online sales due to its large U.S. warehouse network, but Wal-Mart is trying to find ways to compete. Although Wal-Mart is not only building its warehouse network and looking at other opportunities to lower logistics and distribution costs, Amazon posted web sales of $61 billion, compared to an estimated $7.7 billion for Wal-Mart. It was stated by former Wal-Mart executives that Wal-Mart was late to the e-commerce game. By taking this “wait and see” approach into the e-commerce business, Wal-Mart lost valuable market share to its competitors that it has not been able to regain. As more consumers purchase items via the internet it will be even more necessary for management to be creative in finding new ways to pick-up customer business.

In an attempt to compete in e-commerce Wal-Mart will either ship from warehouses, have workers package products and send from individual store locations or even in certain store locations set up in-store lockers for e-commerce customers to pick-up items. Wal-Mart may be able to take advantage of same day delivery for grocery items that other companies started to try and promote. Currently the store isn’t set up for same day delivery of fruits and vegetables, but stores like Amazon have started to build there infrastructure for shipping same day perishable items. Recent acquisitions by Wal-Mart, including the company’s purchase of Chinese online retailer Yihaodian, have helped to increased this years fiscal global e-commerce earnings. I believe that it will take more of these acquisitions for in order to increase at the pace to pick up market share. This could be in the form of warehousing, logistics or even software.

I find it strange that a company as large as Wal-Mart has not been able to be more competitive in e-commerce and that management took a backseat early on in this quickly growing market. Not only in the U.S. but in markets like China you are seeing huge e-commerce business by companies such as Costco and Macy’s. These companies have found that this can be a way to limit risk and costs by not needing to have stores, but just have warehouses in low rent areas. Using the vast supply chains of these companies will continue to push them to increase their e-commerce sales.

Over the past few years I have used e-commerce for its convenience and ease of searching for products. In terms of groceries I still like to go to the store in-person to make my choices, but for pretty much anything else, I’ll shop via e-commerce. From the articles I’ve read and people I’ve spoke with it appears that this is the trend in the marketplace.

Do you think it’s necessary for Wal-Mart to increase its e-commerce market share in order to excel? Do you expect that the current ideas Wal-Mart has to increase e-commerce sales will work or are there other ideas that would work better for Wal-Mart’s business model?

The thought of ordering an item online and receiving it the same day, just a few hours later seems unrealistic. With technology becoming more integrated in our world and the demand for instant gratification, this unrealistic idea is now a reality. Major corporations like Wal-Mart, Amazon, and EBay have adopted this new service of same-day delivery. It is really testing the limits of supply chain management, and now a whole new look on logistics is being placed in the hands of these corporations.

Wal-Mart , is sitting at an advantage because of its massive fleet of stores across the country. They use their 4,005 locations as inventory holders and distribution centers, so now when you order something before noon you can receive it by that evening. Workers will literally go down the aisle and collect the item you want, which is later delivered to your door. Even though this service is only in the test phase in five major cities, Denver, Philadelphia, Minneapolis, northern Virginia and San Francisco/San Jose, it has proven to be a huge success thus far.

Amazon has a new technology that now sends your order to the closest of its 40 massive and highly efficient distribution centers that has same day service available. From here a robot find your item and places it in a place where a human can package it and ship it to you just in time before the day is over. This is pretty crazy, right? Wait till read this next corporation’s new strategy!

EBay, a dominant online seller has a brand-new beta service that brings same day delivery to an even new level. It currently operates in beta form in New York, San Francisco, and San Jose. This service involves personal shoppers, or “valets, that EBay will send to pick up a good you have just ordered. They will literally drive to the outlet from which you ordered it from through EBay, and deliver it to your doorstep that same day, sometimes even within only few hours! If this doesn’t impress you then this will. EBay now even offers an iOS app that you can use to buy, and track your item for same day delivery. This app tracks your “valets” progress in real time so you know exactly where he/she is, what step of the delivery they are on, and how far away they are from your home. This tracking app will even give you a picture of what the “valet” looks like so you can recognize them when they arrive. Once they have arrived, all you have to do is simply swipe your credit card, or pay with PayPal. The best part about this service is that it costs only $5, yes that’s it!

With this extremely gratifying service from these corporations how do you think it tests the limits of supply chain management and inventory management? Could this be the future for online shopping or delivery? Do you think implementing the service that EBay has in many other corporations could add a lot of jobs to the economy?

Google has a problem. Google’s problem is that for all their variety of products, their only revenue stream of consequence is advertising. And for all of the fancy ideas and products they throw at the market, it appears that unless they can take back the mobile handset market with their Motorola purchase (which they do not appear to be positioning themselves to do), advertising is going to be the primary revenue stream for Google for a long time to come.

Google has a business model problem, and the cornerstone of this problem is the fact that while Google is in the advertising market, it has outgrown the market. In the early years, their growth was fueled by the rapid growth in electronic commerce, and the fact that traditional advertising was not able to drive electronic commerce. Since then the market has stabilized and Google is the established leader in electronic advertising, with the traditional channels still maintaining print, outdoor, television and other media channels. If it can be reasonably assumed that the largest growth in electronic commerce is behind us and that the current landscape will be increasingly more mobile where Google has lower market share, Google has limited potential for continued growth in advertising.

Google’s revenue is almost entirely in advertising, and they don’t appear to be branching out any time soon.

For all its searching (and finding) adjacent markets, it appears they only make halfhearted attempts at monetizing these markets. Take for example the ability to perform mathematics and graphing functions through their search engine. Before Google entered, WolframAlpha provided this capability through free trials followed by premium memberships which have additional flexibility and capabilities. However, Google appears to have entered only for the purpose of limiting the revenue potential of a minor competitor, if WolframAlpha can even be called this.

Meanwhile, Apple and Amazon have established themselves with business models that, while very different from Google, flank and de-position the Google business model. Apple has built a successful model of obtaining revenue from software, hardware, services, as well as content which Google has not been able to replicate quickly enough. Not only this, but Apple has clearly been moving away from Google in all elements of their operations, recently even taking Google Maps from their mobile devices – clearly in an effort to eliminate the potential for advertising revenue through popular Apple devices. Likewise, Amazon has built a successful model entirely based on selling products and online content; if Amazon is the premier internet source for products and content, they also control the advertising of the content and Google is again left out of the picture.

Google needs a 2.0 strategy in order to continue their growth. This strategy must appreciate, but not limit itself to their advertising market strengths. This strategy must not simply copy the strategy of Apple, but must provide differentiated value in order to become a significant source of revenue.

Usually lost in all the hype about holiday shopping are the seasonal workers who make it all possible. Every year, tens of thousands of people are hired for a few months during the holiday season, and of course this year is no exception. During the rest of the year, Amazon employs around 20,000 workers to staff its 40 US fulfillment centers. Amazon will be hiring more double that amount for this holiday season alone. About 50,000 “temporary associates” will be brought on to work in its fulfillment centers in order to deal with the massive increase in sales which starts around this time each year. ( http://multichannelmerchant.com/2012-holiday-preparedness/Amazon-to-hire-50000-season-fulfillment-center-employees/ ) Amazon is far from the only one, either. Walmart, for example, announced in September plans to hire around 50,000 people for their stores and Target will be adding anywhere from 80,000 to 90,000 people to deal with the holiday season.

It is one thing to double or triple your staff, however, and quite another to make it work. These hires cannot be made carelessly or without proper planning, which all goes back to the management and how they control their operations. The staff has to be trained quickly and effectively to ensure that when the amount of staff at a fulfillment center triples, there are not inefficiencies created. As has been discussed in a few prior posts on this blog, Amazon’s fulfillment centers are incredibly efficient. There is a reason that they are set up how they are, and this system works almost flawlessly throughout the year. During the holidays though, things are pushed to their limits. Of course, by now Amazon has been through plenty of holiday seasons already, so I’m sure the system is mostly streamlined and improving year to year from the management side. I wonder what it is like though for the employees to go through that sort of transformational change in the work place, a setting which could have a couple hundred one week and over a thousand the next.

Personally I’ve never had the experience of working somewhere which has had to deal with tons of seasonal hires. But have any of you joined a company as a seasonal worker, and what was that like? Or, have any of you been a regular employee at a company that has brought on a bunch of seasonal workers, and how was that experience?

Nowadays it’s rare to hear about someone who did not shop or order a product online. I remember my first time I decided to buy a book from Amazon since year 2000 and I felt that I’m not going to receive the book and the money I paid is gone as I didn’t shop online before. The second step after placing the order is the invoice; there were multiple options for shipment based on duration and the higher the duration (number of days from placing the order to delivery) the cheapest it costs. As a result, Amazon allows me to adjust my invoice based on my preferences and urgency on receiving my order; I place my choice as the most urgent as I remember it was three days. Next day my friend told me that I can track the shipment then I login to Amazon and look for tracking shipment, it was showing that my order has left the U.S. and it’s in London ready for shipment to Bahrain. At last I got my book after three days as I requested and I was happy and surprised at the same time.

How Can Amazon or any online shopping portal handle customer orders shipment? Do they do it by them self or do they outsource it to other company?

When I receive my order it was packed in FedEx box then I realized that Amazon is outsourcing the function of online tracking,
handling delivery and customs clearance.

We have learned from our first session that Operations Management has ten critical decisions and one of them is supply chain management. It is obvious that Amazon supply chain manager find outsourcing logistics is advantageous in improving delivery reliability and speed.

As Amazon is focusing in its core business, the concept of outsourcing supply chain is now entrenched as best practice in most sectors. Whether the business is shipping within Asia or across the globe, FedEx is in the business of providing integrated supply chain solutions to customers. The many benefits of an efficient supply chain will help contribute to the business most important goal – improvement of bottom-line profits.

Benefits that can be achieved by working with FedEx include:

Visibility of inventory flowing through the company supply chain

Reduction of unnecessarily high inventory levels

Enhanced customer service by meeting tight deadlines and complex requirements

Reduced warehousing costs

Is FedEx more efficient in handling shipment, delivery and custom clearance than if Amazon did it by itself? Is Amazon driving down cost by having FedEx as a partner ?